USD and stocks enjoy gains following reports of progress in the US shutdown whereas EUR and GBP remained relatively flat

GBP

Sterling trading was tough yesterday as it suffered losses versus the dollar and was pretty much flat against the euro. The pound hovered near a 3-week lows against the dollar punished by support stemming from growing optimism that a U.S deal is edging closer. The currency was also under pressure over concerns that the pace of recovery may be beginning to slow after poor industrial output data. Sterling displayed minimal reaction to the BOE expected decision to keep interest rates and QE unchanged.

We have heard over recent weeks that the impressive highs and consistent flow of impressive data is unlikely to remain. The market is now moving towards this being increasingly likely. Rises across the board had led many to express thoughts that the BOE will alter its stance on interest rates and QE far sooner than originally anticipated. At one time this sentiment was being shouted by the street, whereas now it is far more hushed. It would appear we will now be back to normal trading levels unless future data flips back to previous highs.

U.K stocks put in a solid performance yesterday, rising off the back of the improved U.S situation the FTSE 100 closed 1.5% higher, which propels it from miserable 3 month lows.

No data releases out of the U.K today.Although BOE governor Mark Carney is still in Washington as he attends the 2 day G20 Finance Ministers and Central Bank Governors meeting.

EUR

The euro mostly watched from the sidelines yesterday as the markets continued to be focused on the U.S shutdown. It ranged against the dollar nowhere near the highs seen last week and lost more gains following increasing reports that negotiations in the U.S are improving. It rose slightly against sterling as the pound had a poor day all round. It also suffered from disappointing data releases out of Greece and Portugal. Following recent strong German data releases, many were hoping that the weaker eurozone economies could also display gains to counter fears that the eurozone recovery is being dually led by the recovery stimulus and the stronger economies. The rise in Portugal’s inflation and fall in Greek industrial production did nothing to quell these concerns. However, is does add weight to Mario Draghi’s claims this week that the economy is incredibly fragile therefore resulting in his tentative approach to any changes in monetary policy. E.U stocks also enjoyed rises following progress in the U.S.

In other news we saw a interesting development in European international business. The Peoples bank of China (PBOC) yesterday announced that a swap has been agreed with the ECB. We are now seeing the initial stages of Reminbi’s transition to an international currency. This has been fueled through the growth of the Chinese economy and the governments desire to be more open to increased global trade and collaboration with the Western worlds economy. The agreement will see the central banks buy and repurchase renminbi and euro from one another, making the currencies available to banks in different currency zones. It will last for 3 years and have a cap of 8.1bn where the euro is provided to the PBOC. The PBOC will offer renminbi to the ECB with a cap of RMB 350bn. The deal is good news for the city. The BOE closed a deal earlier this year which leaves London almost certainly morphing into the global leader for renminbi trade.

Plenty of data out of the eurozone today we have French current account figures. CPI for Germany, Spain and Italy. CPI will be closely watched as it acts as a sound barometer for overall economic health.

USD

Hesitant applause rang across the market this morning as signs of progress in U.S budget talks lifted the dollar. The caveat is limited gains, as talk now is merely of a temporary solution. The House of Republicans proposed a 6-week increase in the debt ceiling, if implemented it means the U.S will face a new crunch point immediately before Thanksgiving. The U.S ratings agency Fitch said this morning that whilst they are confident a resolution will be reached by the 17th if this does not happen we may see a downgrade in the U.S default rating.

Republicans are responding to pressure from businesses and constituents unhappy at the shutdown. This pressure is not enough to make them accept the surrender demanded by the Democrats. White flags flying from either side is highly unlikely, ultimately all this proposal does it buy extra time.

The fundamental problem is that for any agreement to stand a chance of passing the Senate, it will have to sacrifice the political motivations of the increasingly powerful Tea party. Presently Republicans are unwilling to cut the Tea party from negotiations. Therefore, pressure is likely to continue in Washington for some time.

Positive signals for the dollar were reinforced by the release of last months FOMC meeting minutes. The FED stressed that tapering will happen this year.

Midday New York trading saw the dollar lose some of its gains as Jobless Claims were released. The number of people applying for U.S unemployment benefits jumped by 66,000 last week to a seasonally adjusted 374,000. Admittedly the spike was largely down to California processing a huge backlog of claims and the partial shutdown prompting some companies to cut jobs. The wider picture is still that labour market conditions are improving, albeit not quite as much as the market previously thought. Unemployment October last year was 7.9% whereas now it has dropped to 7.3%.

Public outrage and consumer confidence is increasingly affecting market sentiment. We heard plenty prior to the shutdown stressing consumer confidence would be little affected as familiarity breeds contempt and the U.S public have seen partial shutdowns before and appreciate that somewhere up White House sleeves there is a last minute deal waiting. The contrary emerging evidence now suggests people are indeed very unconfidient over the shutdown. The release of Michigan consumer sentiment today is likely to prove this and the market expects a sharp drop.

Data Releases continue to be polluted and cancelled. Typically today would have seen Producer prices, Retail Sales and Total inventories. However these have all been cancelled. The only data release today will be University of Michigan Consumer sentiment. All eyes and ears still on the White House.